SUPERVISORY GUIDANCE ON MODEL RISK MANAGEMENT …

1 Federal Deposit Insurance Corporation SUPERVISORY GUIDANCE ON MODEL RISK MANAGEMENT CONTENTS I. II. Purpose and III. Overview of MODEL Risk IV. MODEL Development, Implementation, and V. MODEL VI. Governance, Policies, and VII. I. INTRODUCTION Banks rely heavily on quantitative analysis and models in most aspects of financial decision They routinely use models for a broad range of activities, including underwriting credits; valuing exposures, instruments, and positions; measuring risk; managing and safeguarding client assets; determining capital and reserve adequacy; and many other activities. In recent years, banks have applied models to more complex products and with more ambitious scope, such as enterprise-wide risk measurement, while the markets in which they are used have also broadened and changed. Changes in regulation have spurred some of the recent developments, particularly the regulatory capital rules for market, credit, and operational risk based on the framework developed by the Basel Committee on Banking Supervision.

and Supervisory Guidance on Implementing Dodd-Frank Act Company-Run Stress Tests for Banking Organizations With Total Consolidated Assets of More Than $10 Billion but Less Than $50 Billion (79 FR 14153). In addition, the advanced-approaches risk-based capital rules (12 CFR 325, Appendix D) contain explicit validation

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